ByCell Telecommunications Pvt. Ltd.

v Union of India: An Analysis

NATIONAL LAW UNIVERSITY, JODHPUR

INVESTMENT LAW PROJECT

ON:

BYCELL TELECOMMUNICATIONS PVT. LTD V UNION OF INDIA : AN ANALYSIS

Submission Date: 31st August 2018

SUBMITTED BY: SUBMITTED TO:

SARTHAK MISHRA MR. ANKIT SHRIVASTAVA
Enrollment No. 1106 Asst. Professor, Faculty of Law
LL.M, CORPORATE LAW
 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

TABLE OF CONTENTS

LIST OF CASES ......................................................................................................................... ii

STATEMENT OF FACTS ......................................................................................................... 1

ISSUES RAISED ......................................................................................................................... 3

ARGUMENTS ADVANCED ..................................................................................................... 4

ARGUMENTS REGARDING VIOLATION OF NATURAL JUSTICE PRINCIPLE ............................... 4

ARGUMENTS REGARDING VIOLATION OF FUNDAMENTAL RIGHTS UNDER ARTICLE 19(1)(G)6

DECISION OF COURT AND CRITICAL ANALYSIS ......................................................... 9

OBITER OF THE COURT .............................................................................................................. 9

RATIO DECIDENDI OF THE COURT ........................................................................................... 10

CRITICAL COMMENT .......................................................................................................... 11

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

LIST OF CASES

1. A.K. Kraipak v Union of India, AIR 1970 SC 150

2. A.K. Sharma v Director General, Civil Aviation, AIR 2002 Del 322
3. Baraka Overseas Traders v Director General of Foreign Trade (2006) 8 SCC 103
4. Bennett Coleman v Union of India, [1973] 2 S.C.R. 757
5. Dresser Rand S.A. v Bindal Argo Chem Ltd., (2006) 1 SCC 751
6. Indian Express Newspaper v Union of India, AIR 1986 515
7. Indo-China Stream Navigation Co. Ltd v Jasjit Singh, AIR 1964 SC 1140
8. People’s Union for Civil Liberties v Union of India, (2004) 2 SCC 476
9. Peoples’ Union for Civil Liberties v Union of India, (2004) 2 SCC 476
10. R.C. Cooper v Union of India, [1970] 3 SCR 530
11. Salomon v Salomon, [1897] AC 22
12. Star India Pvt. Ltd. v TRAI, (2008) 146 DLT 455
13. State Trading Corporation of India Ltd & others v The Commercial Tax Office, AIR 1963 1811

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

STATEMENT OF FACTS

PARTIES:

BYCELL TELECOMMUNICATIONS LTD. (hereinafter Petitioner) is a joint-venture undertaking of

M/S Bycell Holding AG incorporated in Switzerland and M/S Bitcorp Private Limited, an Indian
Company with the shareholding in proportion of 73.79 : 26.19. The rest of the shares is further
held by two individuals namely: Andrey Polouektov and Ms. Maxim Naumchenko having a
shareholding of 0.0121% (each).

SHAREHOLDING PATTERN OF BYCELL

100% shareholding of 100% shareholding held by

Andrey Polouektov Maxim Naumchenko

Quallis Inc. Kynance Business Ltd.

(Republic of Panama) (British Virgin Island)

(Holding-Subsidiary Relation both Cos. 50% each)

Tenoch Holdings Ltd.

(Nicosia, Cyprus)

(Holding-Subsidiary Relation)

ByCell AG Bitcorp Pvt. Ltd

ByCell Telecom
(Switzerland) (India)
(Joint Venture)
73.79% 23.19%
(PETITIONER)
()

UNION OF INDIA (hereinafter Respondent) is being represented in the present matter through the
Ministry of Communications and Information Technology and FIPB (the latter is concerned with
the grant of Unified Access Service License hereinafter referred as ‘UASL’).

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

TIMELINE OF THE DISPUTE

Date Events

14.12.2005 The Ministry of Communication issued the Unified Access Service

Guidelines, wherein it suggested mandatory approval of FIPB for any
foreign direct investment above 49% with an additional qualification being
that the said investment should not be routed through any ‘unfriendly
country or countries of concern’.
17.01. 2006 – ByCell AG was granted permission by FIPB to make an acquisition of 74%
31.01.2006 equity shareholding in ByCell Telecommunications Ltd. for the purpose of
operation of telecom services in certain circles. In furtherance of the same
application were made on behalf of the petitioner for the grant of UASL
26.09.2007 Another application was made on behalf of the petitioner concerning the
increase of the operational area from the previous 5 circles to 22 circles.
24.10.2007- Approval regarding the increase in the operational area to 22 circles was
06.11.2007 granted to the Petitioner, however, simultaneously, the Ministry of Home
Affairs, intimated the Petitioners concerning the requirement of additional
information relating to the credentials of the investors.
29.01.2008 – The MHA after getting the necessary security clearances approved for the
08.02.2008 increase in the operational sectors, the same where forwarded to the FIPB
which was then cleared by FIPB.
27.02.2008 The MCIT issued Letter of Intent (LOIs) to the Petitioner regarding the
initial 5 circles that it had applied for, consequently the Petitioner made a
deposit of INR 63 crores with regards to same.
04.08.2008 – MoF sent questionnaires to the Petitioners seeking additional information
11.08.2008 regarding the complex foreign collaboration within its corporate structure,
which were reverted to by the Petitioner.
23.03.2009 – Owing to the alleged inaction of the Ministry, the Petitioner filed a writ
01.05.2009 petition (WP (C) No. 7733/2009) seeking status report on its application. On
being directed by the Hon’ble Court of expeditious treatment of Petitioner’s
application within 4 weeks, due to non-compliance of the same, another

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

application (CM 5851/2009), whereby the Hon’ble required filing of an

affidavit by the FIPB. In its affidavit FIPB suggested that the security
clearance granted by the MHA has been revoked and the same is to be taken
up for consideration in its next meeting.
11.05.2009 The FIPB meeting – decision was taken with regards to the revocation of the
security clearance and the same was intimated to the Petitioner.
16.04.2010 All the writ applications were dismissed by the Learned Judge of the Single
Bench, leading to filing of the appeal to the Division of the High Court

FACTS RELEVANT FOR LEGAL EVALUATION:

In pursuance to the above revocation the current writ petition was filed wherein the Petitioner has
challenged the decision of the FIPB primarily on the grounds of: (i) violation of Fundamental
Rights and (ii) violation of Natural Justice principle due to the non-intimation of the reasons
accorded for the impugned order.

ISSUES RAISED

1. Whether the non-intimation of the grounds of revocation would amount to violation of the
Natural Justice Principle?
2. Whether the impugned decision of the Central would amount to violation of the Fundamental
Rights enshrined under Article 19(1)(g) of the Constitution?

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

ARGUMENTS ADVANCED

ARGUMENTS REGARDING VIOLATION OF NATURAL JUSTICE PRINCIPLE

Arguments on behalf of Petitioner

The Petitioner in the present matter has contended that, any decision taken by any of the authority
should be supported by a valid reasoning would be a violation of natural justice principle of audi
alteram partem. The Petitioners while contending the same alleged that they were not given a fair
hearing concerning the rejection of their application as they were merely intimated the rejection
on the grounds of ‘security concerns’, however, no specific reasoning or grounds pertaining to the
apprehension regarding the existence of ground for security concerns wasn’t intimated to the
Petitioner. Hence, they contend that the administrative decision being cursory and devoid of proper
reasoning is invalid and hence violative of the Natural Justice Principles.

Additionally, the Petitioners have also argued that, once the security clearance has been granted,
the same can only be revoked on the grounds of cogent reasons and could not be based upon any
arbitrary administrative action. The Petitioner have further contended that in pursuance to the
concerns raised by the Ministry of Home Affairs (MoHA) and Ministry of Finance (MoF)
concerning its shareholding pattern and ownership, the Petitioner had suggested necessary
amendments and changes and subsequently had made a proposal of the same to both the ministries.
However, there were no replies regarding the same and the mechanism followed therein by the
Respondent in considering the application was very opaque and arbitrary.

In substantiating their allegations, the Petitioner has primarily focused on the decision given by
the Hon’ble Delhi High Court in the A.K. Sharma Case1 wherein the Court had held that, “mere
apprehension of security angle is not sufficient enough to result in the revocation of any security
clearance granted earlier”. Relying on the above judgment the Petitioner argued that once the
security clearance had already been allowed by MoHA, a further investment of 500 crore had been
allowed pursuant to such clearance, the same would invariably bestow certain vested interest and
rights on the Petitioner. Therefore, any subsequent adversarial decision/order should be properly
reasoned and proper intimation is mandated to be given to the interested party so as to allow it to

1
A.K. Sharma v Director General, Civil Aviation, AIR 2002 Del 322

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

make an appropriate case for itself. Further, relying upon a Supreme Court’s judgement, 2 they
claimed that any kind of suspension should be carried out after affording a proper hearing to the
concerned individual and the non-adherence to the same should be considered as a violation of fair
hearing principle which itself enshrines principles of natural justice.

Arguments on behalf of Respondents

The Respondents while contradicting the arguments being made by the Petitioners contended that
the actions of the government were not marred by the allegations of violation of Natural Justice.
In his arguments, the Addl. Solicitor General, made precise arguments with regards to the adequate
procedure that had been followed in the determination of the application of the Petitioner. In the
justification of the same, the Respondent relied on the RTI queries made by the Petitioner with
respect to the MHA Office Memorandum dated 29.01.2008 and the Office Memorandum dated
22.04.2009 that was sent by FIPB to the DoT, noting out the portions of the considerations that
were taken up by the Ministry of Finance regarding the original as well as amended applications
of the Petitioner. Further, the Respondents also contended, which was duly noted by the court that,
the above mentioned documents showcased the complete detailed deliberation process that was
undertaken while considering the application made by the Petitioner.

The Respondent specifically focused upon the 134th and 136th meeting of the FIPB which were
convened specifically to discuss the adverse inputs that were received from the security agencies
regarding the financial structure of the Petitioner company which were primarily resourced from
two Russian nationals. The Respondents further argued that, in addition to the adverse inputs from
the security agencies, the replies from the respondent with regards the MoF questionnaire were
found to be unsatisfactory and the subsequent changes being proposed by the Petitioner would
have done little to remedy the situation, hence, the revocation of the security clearance were
justified on part of the Government keeping in mind the national interest of the country.

2
Baraka Overseas Traders v Director General of Foreign Trade (2006) 8 SCC 103

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

ARGUMENTS REGARDING VIOLATION OF FUNDAMENTAL RIGHTS UNDER ARTICLE 19(1)(G)

Arguments on behalf of Petitioner

The Petitioners while alleging violations of Fundamental Rights, have contended that the Letters
of Intent issued by the DoT, post the issuance of the security clearance by MoHA, essentially
created a vested interest in favour of the Petitioners, hence revocation of the same violated
Petitioner’s right to carry out trade and commerce which is a fundamental right enshrined under
Article 19(1)(g).

The Petitioner primarily based its argument on the contention that the entity was a joint venture
initiative with M/S Bitcorp Private Limited, an Indian company being one of the two participating
company. Hence, by such arbitrary action of the State, the Fundamental Rights of the company
has been violated. Further, the Petitioner relying on the judgements passed by the Hon’ble
Supreme Court in case of Indian Express Newspaper3 where the Hon’ble had held that “the actions
of the State which are characterized by arbitrariness and unreasonableness is bound to affect the
an individual’s right to carry out business” although the Court had made distinction between the
phrases ‘citizen’ and ‘person’, however, it held that, a company might be affected, if the rights of
the individuals involved in such are affected, thereby, declaring the impugned sections of the
Customs Act as violative of Article 19(1)(g).

The Petitioner in the present case, while claiming the same has argued that, the Indian Company
is private limited company, hence, any violation of the rights of the members of the Company
would have significant and direct implications on the commercial interest of the Company. The
Petitioner have relied on the judgment passed by the Hon’ble Supreme Court in the Bennett
Coleman Case4 where the Court had unambiguously held that, “an individual does not lose his
right under Article 19 when he forms any association. Article 19 would still accord protection to
any shareholder of a company, when such violative acts can be directly made attributable to such
shareholders”. The rationale that was given behind such an observation was that, the shareholders
rights are connected with that of the rights of the company, hence, they would be essentially
affected, if the rights of the company are affected.

3
Indian Express Newspaper v Union of India, AIR 1986 515
4
Bennett Coleman v Union of India, [1973] 2 S.C.R. 757

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

Hence, in the present matter, the Petitioner had contended that the Company and its member should
be considered as a single entity rather than the Company being considered as a separate entity.

Arguments on behalf of the Respondent

The Respondent while negating any violation of Fundamental Rights, whatsoever, suggested that
the Petitioner is a company having majority foreign shareholding and hence should be categorized
as foreign company thereby would not be accorded protection under Article 19(1)(g).5 further, the
Respondent went on to argue that, even if the Indian shareholding is considered for purposes of
the protection of fundamental rights under Article 19(1)(g), the same would be a failed attempt as
the Company has a separate legal identity, separate from the identity of its member, hence, is
considered as a juristic personality. Further, it stated that Article 19(1)(g), unlike the other two
provisions under the ‘golden triangle doctrine’ uses the term ‘citizen’. This essentially limits its
applicability to natural citizens of the country, which does not include within its purview any
juristic personality. The Respondents have substantiated their contention by placing reliance on
the Hon’ble Supreme Court’s decision in State Trading Corporation of India Ltd & others v
Commercial Tax Officer6 Visakhapatnam and others whereby the Court held that, “corporate
bodies are juristic persons and so they cannot be termed as citizens though they may be of Indian
nationality due to incorporation in India. Hence it is not entitled to any particular right available
only for citizen like that under Article 19.”

Further, with regards to the claims of the Petitioner regarding the denial of the accessibility to the
relevant material that would have enabled them to present their case better, the Respondents have
had contended that the adverse inputs received by the security agencies were resourced from
confidential sources, hence, the dissemination of such information would essentially compromise
the confidential sources, which would be extremely detrimental to the operations of the security
agencies as well as put national security of the nation in jeopardy. The Respondent in their
arguments relied on one decision7 of the Hon’ble Supreme Court, where the Court had held that,
“The right of information, it was contended, cannot be exercised in abstract and must be

5
Indo-China Stream Navigation Co. Ltd v Jasjit Singh, AIR 1964 SC 1140
6
State Trading Corporation of India Ltd & others v The Commercial Tax Office, AIR 1963 1811
7
People’s Union for Civil Liberties v Union of India, (2004) 2 SCC 476

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

considered in the context in which such right is being claimed and cannot be subject matter of a
right of information.”

The Respondent while arguing the third ground of allegation that the issuance of Letters of Intent
amounted to a creation of vested interest in the Petitioner for carrying out business, submitted that
mere issuance of the letter of intent does not furnish any kind of legal obligation as the same is
subject to the final approval pending the granting of the security clearance. The Respondent relying
on the judgment given in Dressers Rand8 submitted that that a Letter of Intent merely indicates a
party's intention to enter into a contract with the other party in future. Hence, the same could not
intended to bind either party ultimately to enter into any contract.

8
Dresser Rand S.A. v Bindal Argo Chem Ltd., (2006) 1 SCC 751

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

DECISION OF COURT AND CRITICAL ANALYSIS

After perusing the arguments put forward by the parties the Division Bench of the Hon’ble High
Court in its decision dated 09.12.2011 in the application no. LPA 673/2010 filed by the Petitioner.

OBITER OF THE COURT

1. The first observation that the Court gave was that based on the evaluation of the judgement
delivered by the Single Judge Bench, it becomes evidently clear that the FIPB had diligently
evaluated all the relevant inputs received from the security agencies and on the basis of
objective evaluation, concluded that the revocation of the security clearance in light of the new
changed circumstances was in the best interest of the national security of the country.
2. The second obiter that was provided by the Court was that, in cases/instances where there is a
specific agency/authority vested with powers to determine/give opinion with regards to the
element of the national security involved. Then, it is prudent for a presumption to be made in
favour of such agency/authority that the authority imposed on them has been used judiciously.
Hence, the Court should not jump to conclusions and proceed to use its power of judicial
granted under Article 226 of the Constitution. Thus, when any adverse inputs have been
received with regards to the investors, and the revocation of the security clearance, has been
based upon such adverse input, it would not be a proper case for using the power of judicial
review in such cases.
3. The Court also made an observation with the respect to the changes suggested by the Petitioner
and thereafter claiming the non-consideration of the same as a ground for violation of
fundamental rights. The Court took a clear stance with respect to the above claim and held that,
once any adverse have been received by the Government concerning the investors’ credentials,
the same become a reasonable apprehension of compounding the security concerns and thereby
would amount as a ground for revocation of any security clearances granted to such investor.
The mere fact that changes have been made to the financial structure of the investor entity
would not be considered as an over-riding factor in alleviating such grievous apprehensions.
4. The Court finally observed that the in judgement delivered by Single Judge Bench adequate
reasoning for the non-disclosure of the relevant document had been provided for by the
Respondent and the same was justified due to the existing apprehension of the security
agencies’ operation being put in jeopardy, thereby, compromising the security of the country.

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

RATIO DECIDENDI OF THE COURT

The court considered the above reasoning and opined that there existed a reasonable ground for
and hence held that any revocation of security based on adverse inputs from the security
agencies, even if such inputs after received after the security clearance have been granted; and
non-disclosure of the sensitive documents would not amount any violation of natural justice
principle as the element of national security overrides the requirement of upholding the natural
justice in securing personal interest of any individual/corporation. Further, such acts would not
go on to violate the fundamental rights enshrined under Article 19(1)(g) as the investor entity
being a corporation, is a juristic personality and is not protected under the provisions of Article
19(1)(g).

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

CRITICAL COMMENT

If the above obiters and ration of the Court is concerned the same seems to be justified.
Firstly, natural justice principle is unarguably one of the underlining principle to prevent
unreasonable and arbitrary actions. However, as held by the Hon’ble Supreme Court in A.K.
Kraipak Case9 the degree of application of this principle for acts/decision of purely administrative
nature would be different from in that of the judicial decision. The degree of applicability of
Natural Justice in any judicial decision would be far higher and of greater ambit as compared to
the decision making process which are of pure administrative nature.
Further, with respect to the non-disclosure of the relevant documents as a ground for claiming
violation of natural justice principle, seems a bit absurd on part of the Petitioner. The position with
respect to the degree of applicability of natural justice principle has been more settled in the A.K
Kraipak’s judgment as discussed in the foregoing point. This has been primarily done to respect
the existing separation of power model being enshrined under the Constitution and also to grant
autonomy to the Executive autonomy while dealing matters which involved matters of National
Security. In this respect the arguments made by Mr. Soli Sorabjee in the PUCL case10 is extremely
relevant. In his submissions in favour of the Respondents he argued that the right of information
as contained in Clause (a) of Clause (1) of Article 19 is subject to reasonable restrictions contained
in Clause (2) thereof. The right of information, cannot be exercised in abstract and must be
considered in the context in which such right is being claimed. A matter which is sensitive by its
very character cannot be made subject matter of a right of information.11 The same if made
applicable to the current scenario, the relevant document under consideration in the present matter
is pertaining to the information which have been sourced from confidential sources. Thus,
disclosure of the same is often marred with lot of apprehensions that are pressing enough to
jeopardize the nation’s security and operations of its security agencies. Hence, in light of same, it
is the opinion of the author that the stand taken by the court in such a matter is justified and hence,
there is no violation of natural justice whatsoever.

9
A.K. Kraipak v Union of India, AIR 1970 SC 150
10
Peoples’ Union for Civil Liberties v Union of India, (2004) 2 SCC 476
11
Supra note 10 at ¶ 28

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

Secondly, the Petitioner have claimed that, the revocation of security clearance was subsequent to
the issuance of the LoIs. The LoIs in themselves had accorded vested interest on the Petitioner to
carry out its business. If the construction of the provision of Article 19(1)(g) is concerned, then it
uses the term ‘citizen’ and not ‘person’. In several judgements of the Court the stance has already
been clarified that the meaning of the word ‘citizen’ would only be interpreted as natural persons.12
The same has been further clarified in one of the landmark judgements of the Court13, wherein, the
Court has held that, “the Constitution deliberately and advisedly makes a clear distinction between
Fundamental Rights available to 'any person' and those guaranteed to 'all citizens'. Article 19
inter alias guarantees citizens of India (a) the freedom of speech and expression and (g) the right
to carry on any occupation, trade or business. Part II relating to 'citizenship' are clearly
inapplicable to juristic persons; and that neither the provisions of Constitution Part II nor of the
Citizenship Act confer the right of citizenship on recognized citizens, any person other than a
natural person; that they do not contemplate a corporation as a citizen.” If the above position is
something to be considered and proceeded forward with then, the position seems apparently very
clear. The rights enshrined under Article 19 cannot be made applicable to any corporations. Hence,
any violation of the same would be out purview of consideration.

However, there could be an innovative approach towards the same based on the principle of ‘lifting
the corporate veil’. This principle essentially suggests that, even if the Company and
Members/Directors of the company have separate entity, however, given the seriousness of the
prevailing circumstance, such veil can be lifted to examine the personality of the individual
himself.14 However, the Hon’ble Supreme Court in one of its judgement15 while determining the
relation between a company and members have referred to above situation and observed that, “the
lifting corporate veil is an extreme measure undertaken by the courts to determine the personal
liability of the person in default in cases of severe criminal offences. Hence, the same should be
used judiciously by the courts and should not be resorted to as an ordinary course of action”. The
Court further went on to observe that, “that in certain instances situations might arise, where the
personal rights of the members of a corporation may be affected as a collateral to the rights of the
company being affected. However, the same shall not warrant the lifting of the corporate veil so

12
R.C. Cooper v Union of India, [1970] 3 SCR 530
13
Star India Pvt. Ltd. v TRAI, (2008) 146 DLT 455
14
Salomon v Salomon, [1897] AC 22
15
Supra note 6

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 ByCell Telecommunications Pvt. Ltd. v Union of India: An Analysis

as to enforce the rights enshrined under Article 19(1)(g)”.16 The rationale that was resorted to by
the Court was based on the fact that the for any violation to constitute as a fundamental rights
violation should essentially be of a grievous nature, which is capable of being proved in its own
standalone capacity, separate from that of the Company. However, if the violation of the personal
right of a citizen is incidental to the rights of the Company being violated or is based upon the
commercial relationship existing between the company and its members, then, the same could not
be considered grievous enough to constitute a fundamental rights violation per se.

Hence, according to the settled principle of interpretation of Article 19, the arguments of the
Petitioner regarding the violation of the Fundamental Rights, merely on the ground that one of the
parties to the joint venture was an Indian company, falls flat.
Additionally, the allegations about the violations were made on the basis of the Letters of Intent,
which anyway as has been discussed above does not create any binding obligation whatsoever on
the parties or indicate the existence of a binding.
Therefore, in the light of the aforementioned analysis, the author opines that, the ground of security
clearance is under the clear jurisdiction of the Central Government, towards which the Central
Government exercises a justifiable pervasive power. Any allegation about such power being used
in a discretionary or unreasonable method needs to be backed by serious evidences and not mere
passing references, as the Court’s stance in such cases would be in favour of the Government
owing to the view that “national security essentially and undeniably overrides personal right”.

16
Supra note 12 at ¶ 45

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